Example
35
Amrita
took a personal loan from Citi bank for Rs 8 lakh to buy a new car for Rs 9.5
lakh on 1.07.2016. When she lost her job, Amrita fell behind on her repayments
and the bank issued default notice giving her 30 days time to repay the default
amount. Amrita again not able to repay the overdue amount and bank repossessed
the car on 28.08.2017. Lender bank sold the car repossessed through auction for
Rs. 7.5 lakh. The issue arises whether bank liable to pay GST on sale of second
hand goods as in business of dealing in such goods. If yes then what will be the
value for charging GST.
Ans.
The issue that arises for consideration is firstly, whether
disposal of repossessed assets by a bank/ NBFC constitutes a sale by the bank/
NBFC and secondly, whether banks and NBFCs involved in sale of repossessed
assets qualify as 'dealers' for the purposes of applicable State VAT law. The
Court in the case Citi Bank v. Commissioner
of Sales Tax, 2015
concluded that sale of
repossessed vehicles would qualify as the Bank's 'business' and the bank would
qualify as a 'dealer' for the purposes of DST Act.
The sale of second hand goods by bank for recovery of loan is
for furtherance of business and is covered under the scope of supply in GST
under section 7. Now in GST proviso to Rule 32(5)(Determination
of value in respect of certain supplies ) of Chapter-IV CGST Rules, specifically
provides for the manner of determination of purchase price in case of
repossessed or second hand goods for calculation of value of supply. According
to this proviso purchase price of car is deemed as purchase price of car for Amrita
i.e. Rs. 9.5 lakh reduced by 5% point for
each quarter or part from 1.07.2016 to 28.08.2017 i.e. for 5 Quarters. Thus
purchase price is Rs. 9.5 lakh -25% of 9.5 lakh = Rs. 712500
Value of Supply = sale price- purchase price
= Rs. 750000- Rs. 712500
= Rs. 37500 on which GST would be discharged.